March 19, 2009

Court Asked To Declare Copyright Royalty Board Unconstitutional

It’s not often that Metallica, Dr. Dre, and Peter, Paul & Mary are brought up during oral argument, but such was the case today when the U.S. Court of Appeals for the D.C. Circuit delved into Internet radio royalty fees.

In a packed courtroom, a three-judge panel spent more than two hours debating royalty fees approved by the Copyright Royalty Board, whose judges are appointed by the Librarian of Congress. As you might imagine, there were a lot of lawyers filling the rows.

Some of the key players involved in the litigation are Jenner & Block partner Paul Smith, who argued for SoundExchange, a clearinghouse that collects and distributes royalties; Wiley Rein partner Bruce Joseph represented the interests of noncommercial webcasters; and Davis Wright Tremaine partner David Oxenford argued for small commercial webcasters.

At issue in the case is the Copyright Royalty Board's increase in royalty rates and change in how royalties are calculated for music delivered over the Internet. But before the court took up the merits of the rates, there was extensive debate about whether the three judges on the board are sitting in violation of the appointments clause. The argument was raised late in the briefing by attorneys for Royalty Logic, which is challenging the fee system.

Kenneth Freundlich, of Freundlich Law in Los Angeles, representing Royalty Logic, argued that Copyright Royalty Board judges are inferior officers who can only be appointed by the president, the courts, or a department head. The question is whether the Librarian of Congress, who is appointed by the president with the consent of the Senate, is a department head.

“This is the sort of question where history has to be instructive,” said Mark Freeman of the Justice Department Civil Division, who argued for the Copyright Royalty Board. The Librarian of Congress reports to the president, who can fire the librarian at will. Freeman argued the Library of Congress falls squarely under the executive branch even though the Library of Congress considers itself an agency of the legislative branch. The U.S. Copyright Office is under the Library of Congress.

Freundlich urged the panel judges—Chief Judge David Sentelle was sitting with Judges Thomas Griffith and Judith Rogers—not to ignore the constitutional issue (the “elephant in the room,” he said) despite the fact the issue was raised late in the litigation.

Griffith said he was “disappointed” with supplemental briefing on the constitutional issue and asked whether Congress should be given a chance to weigh in. Sentelle noted the court can order additional briefing, but he did not make this order by the end of the hearing. Rogers called the issue “fascinating” and said the D.C. Circuit has long assumed that the Library of Congress was a legislative entity.

None of the judges seemed overly enthusiastic about rushing in to what was collectively deemed a “monumentous” decision in declaring that the judges of the Copyright Royalty Board are sitting in violation of the appointments clause.

If the court dismisses the constitutional claims, it still must decide whether the royalty fee structure is sound and whether an increase in fees was justified. Wiley Rein's Joseph and Oxenford of Davis Wright Tremaine argued against the substantial increase in rates.

The system is set up to include a “default” clearinghouse for royalty fees: SoundExchange, a nonprofit run by the recording industry and artist community. Absent a private agreement between a webcaster and a copyright owner, SoundExchange is the collective where royalty payments come in and then are redistributed.

Jenner & Block’s Smith, representing SoundExchange, implored the court to affirm the board ruling. “The complexity of figuring out who gets the money is enormous,” Smith said. But Royalty Logic’s counsel, Freundlich, said the royalty board has created a monopoly that does not give webcasters a genuine choice in how royalty payments are collected.

Comments

Very interested to see how this comes out. So far, the CRB's rate-setting for 2006-2010 seems to be disastrous for webcasters, small or not. Even SX was surprised that the CRB accepted their proposed rates pretty much w/o changes.
I am concerned with who is supposed to serve on the CRB. I can see the benefit of having a copyright expert, a trade expert and an arbitration expert - but it seems more copyright experts, from more than just the rightholder's perspective, would be better than the other two.